CREJ

6 / 32

Page 6 — Property Management Quarterly — January 2018
Legal
AS A PROPERTY OWNER ARE YOU CONCERNED?
Operating Expenses Rising Real Estate Taxes Construction Schedules
& Construction Costs
 
to t their real estate needs.
Robert Miller,
Principal | Vice President of Operations
+1 303 283 4577
Colliers International | Denver O ce
4643 S. Ulster St. | Ste. 1000 | Denver, CO 80237
†‡+1 303 745 5800| ˆ‰Š+1 303 745 5888
For more information please contact:
I t is so important that proper-
ty managers have a thorough
working knowledge of their
respective leases, understand
each provision, and know the
effects and why the lease provision
exists. As the lease document is
such an important component in
establishing the value of the prop-
erty, each lease must be carefully
negotiated to get the best rents
and terms for the property. From a
property management viewpoint, a
well-negotiated lease clearly estab-
lishes the rights and obligations for
both parties and should minimize
misunderstandings and disputes
in the future. Following is a discus-
sion with Amanda Halstead about
the best way to protect your prop-
erty’s interests in lease negotia-
tions.
• Sessions: Which lease provi-
sions are most heavily negotiated
between the parties?
• Halstead: The list is end-
less. That said, commencement
dates versus rent commence-
ment dates, the scope and timing
of any landlord improvements,
tenant improvement allowances
and abated rent seem to be the
primary focus of most tenants. A
well-represented tenant also likely
will push back on landlord liens,
relocation provisions and radius
restrictions, and often request a
laundry list of exclusions from
operating expenses. Permissible
capital expenditures that may be
passed through to a tenant and the
methodology for calculating the
tenant’s share thereof seem to be
of primary concern. A landlord also
should expect a
tenant to request
that any changes
in use or assign-
ments or subleas-
es be approved in
a landlord’s “rea-
sonable discretion”
as opposed to
“sole discretion,”
as these items
can be central to a
defaulting tenant’s
exit strategy.
• Sessions: What
lease provisions
come back to “bite” the owner?
• Halstead: There really are no
specific provisions that I can recall
that come back to “bite” the owner,
but I can tell you that an ambigu-
ous provision is no friend to a
landlord. Ambiguity only leads to
litigation and additional expense.
An ounce of prevention is worth
a pound of cure. In order to avoid
ambiguity, it is particularly impor-
tant to have your attorney involved
on deal specific provisions like
caps on operating expenses, expan-
sion rights and early termination
rights.
• Sessions: Are you an advocate
of capping operating expenses?
• Halstead: In life, no one has a
crystal ball. That said, as a land-
lord you cannot predict with
certainty what expenses will be
incurred from year to year. With
that in mind, any cap on operating
expenses attributable to a tenant
is a source of potential risk for a
landlord and should be avoided
where possible. There may, how-
ever, be circum-
stances where a
landlord is willing
to take on that
risk in order to fill
a space that has
been vacant for an
extended period
of time or in order
to put a strong
tenant in place. If
a landlord agrees
to a cap on oper-
ating expenses,
language can be
incorporated in an
effort to limit the
landlord’s exposure. For example,
language indicating that the cap
will not apply to uncontrollable
expenses such as taxes, insurance,
utilities, snow removal or other
expenses that vary significantly
year to year might be incorporated
into the lease.
• Sessions: Are you seeing a trend
of owners offering concessions? If
so, what types of concessions?
• Halstead: Concessions vary
widely from property to property
and depend greatly on market con-
ditions. The most typical conces-
sions I come across are improve-
ment allowances and abated rents.
Currently, I am seeing both being
offered by landlords in the Den-
ver metro area. Abated rents often
are provided to new businesses to
give them a chance to complete
improvements, open for business
and generate an income stream
before rents are due and payable.
A landlord should, however, be
careful not to “put a tenant into
business.” In other words, it’s not
wise for a landlord to fund the
startup of a new business by fully
funding improvements and abat-
ing rents. In my experience, the
likelihood of a successful ten-
ant is stronger where that tenant
invested in his own business at
the outset, thereby assuming some
monetary risk.
• Sessions: Are you an advocate
of options and first right of refus-
als?
• Halstead: As a general rule, in
the legal world, an attorney’s most
likely response to any legal ques-
tion is “it depends”; however, that’s
not the case with respect to first
rights of refusal. My primary con-
cern over first rights of refusal to
purchase or lease additional prem-
ises is that the landlord may forget
or overlook a tenant’s rights, sell or
lease a property, and find himself
exposed to a claim for damages.
Moreover, the delays associated
with the time required for a land-
lord to provide notice to the ten-
ant of the terms of a prospective
lease or sale and await the ten-
ant’s response can put a chill on a
prospective sale or lease to a third
party.
As for options to extend a lease
term, there are pros and cons.
An option to extend can be quite
valuable to a tenant who is making a
significant initial capital investment
into a space or trying to build the
goodwill of her business. An option
to extend can be equally valuable to
a landlord who is able to avoid any
Steven S.
Sessions
CEO, Sessions
Group LLC, Denver
Amanda H.
Halstead
Member, Mills,
Schmitz, Halstead,
Zaloudek LLC,
Denver